Amazon Is the Best of the Best, But Approach With Caution

I planned on sharing a completely positive note on Amazon (NASDAQ:AMZN) stock today. Therefore, it breaks my heart to be a little cautious instead.

Logistics activity on the Amazon site of Vélizy-Villacoublay in France. Packages are sorted by workers on coneyors.
Source: Frederic Legrand - COMEO / Shutterstock.com

No, I have not lost my love for AMZN stock. It’s still the best of the best in my book. This last breakout delivered too much too fast. There will be better investment opportunities lower, but with a twist. Later, I will share a really exciting breakout potential to track through Friday.

From here, taking new long-term investment positions in Amazon is risky. This here is not an obvious entry point with confidence. This is my favorite stock of all, so these comments are cautionary not bearish.

Most investors can pick the right stocks. Where they fail most often is with the “when” part of the equation. Timing is tricky especially for a stock that moves this fast.

AMZN soared almost 5% on Tuesday. Shopify (NYSE:SHOP) and Apple (NASDAQ:AAPL) also rallied among many others. The Microsoft (NASDAQ:MSFT) Pentagon headline played the catalyst part but it’s immaterial in the long run.

The bid under AMZN and the rest of the FANG gang is is just part of the rotation trade. Investors have traded love between the small caps and the Nasdaq for months.

Investors Will Have Better AMZN Stock Opportunities

Amzon (AMZN) Stock Chart Showing Extreme Conditions
Source: Charts by TradingView

The better entry points from here would be after a correction into its prior support levels. There are several of those between $3,400 and $3,200 per share. There’s was no need to rush into chasing the upside yesterday morning. Patience is usually the right course of action. I am confident that investors will have an opportunity to deploy long-term risk from better vantage points.

Moreover, earlier I teased about a bit of a twist in upside opportunity. That would be for active traders who don’t mind scalping wins and trading the price action. This would be a blend of slow-moving but violent breakout. To see this, we have to zoom out to a weekly chart (pictured). If the bulls can close on a new weekly all-time high, they can rally another 700 points from there.

You read that right, the breakout could be something fantastic.  Nvidia (NASDAQ:NVDA) just did something close to it, so it’s doable.

The opportunity comes from a long consolidation period happening now. AMZN stock rallied fast and furious out of the pandemic. Then it stalled inside the current year-long consolidation stint. It has ping-ponged inside a very wide sideways channel. If they can breach the upper limits, the bulls will overshoot up in a big way. The bears will not stand a chance because they would be an open air.

This, however, would not qualify as a long-term full size entry into Amazon stock. Those who capture it need to book profits fast because I don’t think it would last long. Investors who buy-and-hold will likely fall in a trap for a while.

Record-Breaking Markets Are Dangerous

The stock markets are breaking records about breaking records. Yesterday the S&P 500 barely closed red thereby stopping the run at nine consecutive new all-time highs. That was one day shy of yet another record about record highs.

But one red tick does not constitute a dip. The indices have gone way too far without a significant correction. This alone is not a reason to short, but it is reason to doubt the bullish thesis including Amazon stock.

Exercising patience now is hard but it is the right course of action. Active traders understand this concept of timing. Those who are purist investors may have an issue with me suggesting to wait. But if indeed a few bucks difference won’t matter, then there is no loss in waiting. I would rather miss another 5% of upside then to buy a top.

They don’t ring bells at tops, but the indices charts are looking parabolic beyond anything we’ve ever had before. That alone should raise questions because it is literally uncharted territory. Therefore my conviction in all of my trades is purposely lower than normal by design. I believe this extra caution will keep me safer then the average bear – pun intended.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.


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